Tucson Botanical Gardens, Inc. v. Pima County – 5/20/2008

May 28, 2008

Arizona Court of Appeals Division One Holds That Botanical Gardens, a Qualified Non-Profit, Charitable Organization, is Entitled to an Exemption From Property Taxes on Those Portions of Its Property Used to Operate a Gift Shop, Exhibit Art For Sale, and Rent to Various Third Parties.

Tucson Botanical Gardens, Inc. (“TBG”) is a qualified non-profit, charitable organization under §501(c)(3) of the United States Internal Revenue Code and Ariz. Rev. Stat. (“A.R.S.”) § 43-1201.  As such, it is exempt from real property taxes if the property is “used for those [charitable] purposes and not used or held for profit.”  A.R.S. § 42-11116.  For the 2005 tax year, PimaCounty (“County”) notified TBG that it would receive only a partial exemption because the county had determined that the gift shop, art exhibition, and meeting areas were not exempt from taxation.  TBG paid its 2005 property taxes in full under protest and appealed to the superior court.  The tax court granted summary judgment in favor of TBG and the County timely appealed.

The County argued on appeal that the TBG gift shop and meeting areas are not exempt from property taxes because those areas are used for non-exempt commercial purposes: the sale of non-educational items and renting meeting areas to private parties or using them to exhibit art for sale.  The Arizona Appeals Court rejected this argument, holding that as long as the taxpayer’s principal or primary use of its property is for the designated exempt purpose, the taxpayer is entitled to the exemption notwithstanding its occasional or incidental use of its property for other purposes.  TBG presented uncontroverted evidence that it primarily uses the gift shop and meeting areas for its own charitable, exempt purposes.  Therefore, TBG was entitled to the tax exemption on all of its property.

Judge Norris authored the opinion; Presiding Judge Timmer and Judge Brown concurred.